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Page 3, line 35, at end insert--
("(1A) Any employer employing fewer than ten employees may elect that any tax credit to which an employee is entitled shall be paid by the Board instead of being paid by him.
(1B) For the purposes of subsection (1A), the Board may make regulations providing for--
(a) the method for making or revoking an election;
(b) the method for cancelling an election if the employer subsequently employs ten or more employees; and
(c) two or more connected employers to be treated in specified circumstances as if each of them employed the employees employed by the other connected employers as well as the employees employed by himself.")

On Question, amendment agreed to.

[Amendments Nos. 33 and 34 not moved.]

Lord Astor of Hever moved Amendment No. 35:


Page 3, line 46, at end insert--
("( ) that the Board shall not pass to an employer any information other than the amount of tax credit which a particular employee should be paid;")

The noble Lord said: In moving Amendment No. 35 I shall speak also to Amendment No. 38, which also deals with the issue of confidentiality. Amendment No. 35 would protect employees from any unscrupulous employer. There are documented instances of vulnerable employees being harassed by their employers. Amendment No. 38 prevents the disclosure of an employee's private affairs to other employees.

As I said at Second Reading, employees gossip. I thought that my noble friend Lady Fookes covered this point very well earlier this afternoon. Various noble

4 May 1999 : Column 591

Lords raised the issue of stigma at Second Reading. This amendment aims to minimise that possibility by requiring employers to take reasonable precautions to ensure that only those who deal directly with the payroll are aware of which employees are in receipt of the working families' tax credit or the disabled persons' tax credit. I beg to move.

Lord McIntosh of Haringey: It is helpful that the noble Lord has grouped together Amendments Nos. 35 and 38. Amendment No. 35 seeks to restrict the information which the board may provide to employers in relation to their employees. I was interested to hear the noble Lord, Lord Astor, describe them as "unscrupulous" employers.

He is clearly motivated--and I understand that--by the fear that the Inland Revenue will divulge confidential information about employees to employers. However, I assure the noble Lord and the Committee that that will not be the case. The draft regulations already make clear exactly what information the Inland Revenue will pass to the employer in relation to tax credit applications.

One situation in which the Inland Revenue will need to contact an employer about an employee's application for a tax credit will arise if the employee has not enclosed pay slips with the application form. In that case, the Inland Revenue will need to ask the employer to verify the applicant's earnings. That happens already when the Benefits Agency is processing claims for family credit and DWA.

As under the current system, the Inland Revenue will tell the employer only that the employee has applied for a tax credit. It will not reveal which tax credit has been applied for, as my noble friend Lady Hollis said in relation to an earlier amendment.

The other situation in which the Inland Revenue will contact the employer is when sending a notification to pay tax credit through the payroll. There again, the employer will be told only that the employee is entitled to a certain amount of tax credit. The employer will not be told which tax credit; nor will the Inland Revenue give a breakdown of the various elements of an award. The employer will be required to enter the amount on the employee's pay slip as "tax credit" and no further details will be given.

The employer scheme already contains safeguards to ensure that the Board will provide only the details which are strictly necessary for the employer to pay the right amount of tax credit to the right person at the right time. I assure the Committee that the Inland Revenue, above all, has long experience of handling large amounts of sensitive, personal information. All Inland Revenue staff must sign a declaration of secrecy prohibiting them from making any unauthorised disclosure of information received in the course of their duties. Any unauthorised disclosure is a criminal offence, punishable by imprisonment and/or a fine. Therefore, the safeguard proposed in Amendment No. 35 is unnecessary. I hope that the noble Lord will recognise, given the history of the Inland Revenue, that the protection is even stronger.

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Amendment No. 38 seeks to require employers to take reasonable precautions so that the fact that an employee is in receipt of tax credit is not disclosed to any other employee except those directly responsible for the administration of the payroll. I am sure that it is a well-meaning amendment. It is extremely important that the private financial affairs of employees are treated as confidential. But it is not clear to me that a statutory provision is either enforceable or necessary.

As regards enforceability, what are "reasonable precautions"? Who would decide? Is it the intention that employers should be obliged to put in place special administrative arrangements? If so, that would involve additional burdens on business.

How would the Inland Revenue police those arrangements? It is not the Revenue's duty to control employers' administration systems. It is unclear what sanctions could be brought against employers who transgress. It seems to me that the amendment could give rise to a cumbersome and unenforceable compliance regime which would involve costs for employers and government.

In any event, is that really necessary? I have greater confidence in the discretion of employers than has the noble Lord, Lord Astor. Employers already have an obligation to respect the privacy of their employees. The Data Protection Act 1984 imposes a duty on people processing personal information to use that information only for the authorised purpose and not to disclose it to unauthorised persons. As those of us who were involved with its passage through this House will remember, the 1984 Act relates only to computerised records but the Data Protection Act 1998 extends the protection to structured manual records which will include such items as manually prepared pay slips. So employees are already protected against employers who break the rules of confidentiality.

When tax credit is paid through the payroll, it will be shown on the employee's itemised pay slip. It will be just one more item of income. We can safely assume that staff who process the payroll will regard tax credits as being confidential in the same way that pay details are. I see no reason why employers should be any less discreet about tax credit details than they are about pay. I hope that the noble Lord will be satisfied with the safeguards which already exist and that he will not feel it necessary to press the amendment.

Lord Astor of Hever: I am grateful to the Minister for that reply. In view of his firm assurances on Amendment No. 35, I am happy to withdraw it. With regard to Amendment No. 38, I wish to study closely in Hansard the points which he made. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 36 not moved.]

Lord Astor of Hever moved Amendment No. 37:


Page 4, line 6, at end insert--
("( ) for the payment of the costs of operating tax credits incurred by employers where those employers' annual National Insurance Contributions payments do not exceed £25,000;

4 May 1999 : Column 593

The noble Lord said: Amendment No. 37 deals with the burden which the WFTC imposes on certain small businesses. It seeks to protect that vital part of our economy and ensure that the Government's Bill does not have the impact of harming those it most purports to help.

The considerable opposition to the impact of the Bill has been very well recorded in your Lordships' House. The Institute of Directors, the CBI, the Federation of Small Businesses, the British chambers of commerce and the Low Pay Unit have all expressed serious reservations about the Government's proposals. Far from being obstructive, they are centred around the negative impact of the WFTC on the management of small businesses.

The Opposition wish fully to align themselves with the view of those organisations. I believe that the noble Baroness was sending the wrong message to the business community when she dismissed those views on Second Reading as nothing more than resisting anything that can be regarded as the proper responsibility of business. That was an inadequate response to the legitimate concerns raised by those very business organisations which this Government have tried to court so assiduously. Small businesses account for half of this country's private sector workforce and employ many low-skilled and semi-skilled workers covered by the provisions of the Bill. The administrative and managerial burdens of the WFTC may well mean that small businesses lay off or do not take on such employees.

The Social Security Select Committee recommended that the Inland Revenue should reimburse small employers' administrative costs. There is no commitment to do that in the Bill. We suggest that employers should be given some sort of compensation and a suitable threshold should be set relating to their national insurance contributions. This is yet another tax which businesses must administer in addition to PAYE, statutory sick pay and maternity pay. In addition, there are proposals in the pipeline to use employers' payrolls for student loan repayments and contributions to the Government's stakeholder pensions. We suggest that they are given compensation in the same way that administrative help is given to small companies which administer maternity pay.

Asking struggling small businesses, employing a handful of people, to take on that task unpaid is too much. They must be compensated for the administrative costs of paying tax credits. I beg to move.

6 p.m.

Lord Goodhart: I hope that the Government will give favourable consideration to the amendment moved by the noble Lord, Lord Astor of Hever.

The amendment is directed at a problem that is now considerably diminished as a result of Amendments Nos. 29 and 32, which are, for the time being, part of the Bill and which allow small employers to opt out. Clearly, the Government do not want employers to do that. They have made that very clear. Employers are less likely to be upset and to want to opt out if their costs are reimbursed.

4 May 1999 : Column 594

This amendment follows the pattern set for statutory maternity pay, where small employers receive the amount paid in statutory maternity pay with a 7 per cent top-up. Although it is not stated in the regulations, the reason for that is to cover the additional administrative burden, as the noble Lord, Lord Astor, pointed out. The House of Commons Select Committee on Social Security recommended that the cost should be reimbursed to small employers.

For good social reasons, which we understand and support, the Government accept, as did the previous government, that wages need to be topped up for low paid workers. The present Government have chosen to make employers act as paying agents for such benefits. Those payments are made in the public interest, and not in the interest of the employers who pay them, so it is appropriate that the public purse should bear the costs. I am not concerned if larger employers have to bear the burden--this amendment does not make them do so--because larger employers have payroll programmes, computers and administrative staff to handle wages and PAYE contributions. It would be easy enough to write programmes to handle tax credits as well. However, as we discussed at great length earlier, this will be a serious burden for small employers. Whether the sum is £135 or £370 a year, either sum will be significant.

I accept that employers act as agents for the Government in deducting tax and NICs, for which they receive no payment. However, PAYE deductions go back a long way. They were introduced in 1943 and compensation for administrative costs was perhaps not at the top of people's minds. In the case of PAYE, employers receive some cash-flow advantages because they hand over the deductions later than they pay the wages.

Another important difference is that almost all employers are liable to pay PAYE contributions, but only one in ten small employers, which constitutes a majority of the total number, will pay the working families' tax credit. If they receive no refund of the costs, discrimination will take place in favour of those who do not have employees eligible for working families' tax credit as against those whose employees are eligible for the tax credit.

Earlier, I explained why I believe that smaller employers will be reluctant to employ people who qualify for the tax credit. I believe that they will be much less reluctant if they are refunded the administrative costs that they have to bear.


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